Policy/Social Context

It seems like about half of the reports about nonprofits being arm-twisted into payments in lieu of taxes (PILOTs) take place in Pittsburgh, as the Steel City’s mayor has long been on something of a PILOTs crusade. The battles between the city’s nonprofit sector and the revenue-desperate Mayor Luke Ravenstahl have been instructive. Most of the nonprofits in Pittsburgh banded together to make an unusual joint payment through the Pittsburgh Public Service Fund, which does not disclose how much each member of the consortium contributed and how that amount was calculated. The University of Pittsburgh Medical Center (UPMC) does not participate in the fund, but has been able to circumvent the city’s request for a PILOT through making a large, multi-year contribution to the Pittsburgh Promise scholarship fund.

UPMC’s relationship with the city and with citizens has been off-and-on tense, but now the latest is that Ravenstahl says the city’s legal department is going to challenge UPMC’s charitable tax status. Under the state’s formula for meriting a property tax exemption, UPMC will allegedly fall short of three criteria, including its allegedly insufficient charity care and its allegedly excessive executive salaries. Ravenstahl’s news release challenges UPMC to “act like the charity it claims to be” and “engage in a serious conversation with the city and key stakeholders about its responsibilities to our community.” The mayor said that a city legal opinion concluded that UPMC’s “commitment to charity is dwarfed by its preoccupation with profits.”

By the numbers, UPMC paid compensation of $15 million to eight executives (including $5.5 million to the president/CEO), reported income of $277 million on revenues of $6.6 billion for a profit margin of 4.2 percent, and spent somewhere between 1.7 percent and 3.6 percent of patient revenues on free care for people unable to pay. The ability of Pennsylvania to conduct case-by-case inquiries into the sufficiency of the charitable activities of nonprofit property owners leaves a big gray area for subjective interpretation. There are two elements of the mayor’s challenge to UPMC that bear watching.

Mayor Ravenstahl in Pittsburgh and Mayor Michael Nutter in Philadelphia are trying to balance city budgets stressed by unfunded pension liabilities and other general costs. Ravenstahl’s announcement about questioning UPMC’s charitable bona fides may signal that city governments are less interested in the good things that a nonprofit hospital like UPMC might do – such as millions of dollars in scholarships for Pittsburgh public school students – than they are in finding revenues for depleted City Hall coffers. —Rick Cohen